IRS, DOL and HHS Issue New Claims Rules for Group Health Plans

The Internal Revenue Service, the Department of Labor's Employee Benefits Security Administration, and the Department of Health and Human Services issued today interim and final rules for group health plans and health insurance issuers relating to internal claims and appeals and external review processes under the Patient and Affordable Care Act. The text of the rules can be found at www.dol.gov.

New DOL "Guidance" on Fees to Plan Service Providers

In recent years, the way services are provided to employee benefit plans (such as record keeping services and investment services) and the way service providers are compensated have become increasingly complex. Indeed, in the 401(k) plan context, there have been over the past few years myriad "excess fee" lawsuits challenging the fees paid by plans and plan fiduciaries to services providers. To address the issue, the United States Department of Labor ("DOL") announced last week an interim final rule that purports to "enhance disclosure to fiduciaries of 401(k) and other retirement plans." Although DOL has in the past issued (it its own words) "considerable guidance" relating to the obligations of plan fiduciaries in selecting and monitoring service providers, the interim final rule "establishes, for the first time, a specific disclosure obligation for plan service providers."

According to DOL, the rule will assist fiduciaries in determining both (1) the reasonableness of compensation paid to plan service providers, and (2) any conflicts of interest that may impact a service provider's performance under a service contract or arrangement. Generally speaking, the interim final rule will enhance disclosure to pension plan fiduciaries by requiring the disclosure of the direct and indirect compensation certain service providers receive in connection with the services they provide. The rule applies to plan service providers that expect to receive $1,000 or more in compensation and that (1) provide certain fiduciary or investment advisory services to plans, (2) make available plan investment options in connection with brokerage or record keeping services, or (3) otherwise receive indirect compensation for providing certain services to plans.

Plan service providers will now have to provide the plan fiduciaries they service a substantial amount of information, in writing. Information that must be disclosed includes a description of the services to be provided and all direct and indirect compensation to be receievd by the service provider (or its affiliates or subcontractors). Because certain services and costs are so significant and/or present the potential for a conflict of interest, information concerning those services and costs must be disclosed without regard to whether services are furnished as part of a bundle or package. Service providers must also disclose whether they are providing any services as a fiduciary to the plan. According to DOL, these new requirements will result in reduced time and cost for fiduciaries to obtain the compensation information needed to fulfill their fiduciary duties.

The full text of the interim regulation may be found at http://www.dol.gov.

The Force Is Not With You Mr. Lucas

The San Fransisco Chronicle reports that a California jury awarded $113,800 in damages against Lucasfilm Ltd earlier this week for withdrawing a job offer from a San Francisco woman after she disclosed that she was pregnant. Lucasfilm Ltd. is film director George Lucas' film production company. Mr. Lucas directed the Star Wars movies. The woman had applied to become an assistant manager at Lucasfilms' personal headquarters in April 2008. She signed a contract for a 30-day position two months later, but said she was told it was a probationary period for a permanent $75,000-a-year job. Two days later, and only days before she was to start work, the woman told her prospective supervisor that she was pregnant. Her job offer was subsequently withdrawn.

DOL Extends FMLA Leave to Gay Workers

The United States Department of Labor ("DOL") announced yesterday that it was "clarifying" the definition of "son and daughter" under the Family and Medical Leave Act ("FMLA") to ensure that an employee who assumes the role of caring for a child receives the parental rights to family leave regardless of the that employee's legal or biological relationship with the child. The FMLA generally allows employees to take up to twelve (12) weeks of unpaid leave during any twelve (12) month period to care for loved ones or themselves. The FMLA also allows employees to take time off for the adoption or birth of a child. The DOL's press release (see www.dol.gov) proclaims that its clarification "is a victory for many non-traditional families" and "sends a clear message to families in the lesbian-gay-bisexual-transgender community, who often in the past have been denied leave to care for their loved ones." According to National Public Radio (www.npr.org), this clarification, coming less than five months before November's congressional elections, likely will incite conservatives and Republicans who earlier opposed the Obama administration's efforts to repeal a ban on gays and lesbians serving openly in the military.

Supreme Court Decides ERISA Attorneys' Fee Case -- And Doesn't Answer Any Questions

In its latest ERISA decision, and in a decision that will leave practitioners and litigants scratching their heads, the Supreme Court ruled on Monday that attorneys' fees are available in ERISA benefits cases to parties that have achieved "some degree of success on the merits." The Court's ruling, in this practitioner's view, did nothing but further confuse the issues.

By way of background, the case arose from Reliance Standard Life Insurance Company's ("Reliance") denial of Bridget Hart's claim for long term disability benefits. Hart filed suit in federal district court challenging the denial. The district court held that Reliance did not properly review Hart's benefit claim and remanded the case to Reliance for further consideration with instructions to properly review the evidence in the administrative record. On remand, Reliance reversed its decision and awarded Hart benefits. Hart subsequently moved for attorneys' fees in the district court, which fees the district court awarded and the United States Court of Appeals for the Fourth Circuit reversed.

In reversing the Fourth Circuit's denial of attorneys' fees, the Supreme Court focused its attention on the circumstances under which a court may award attorneys' fees under section 502(g)(1) of ERISA. Citing its 1983 decision in Ruckelshaus v. Sierra Club, the Court said that because the words "prevailing party" do not appear in the next of Section 502(g)(1), and nothing else in Section 502(g)(1) showed that Congress meant to abandon the traditional American Rule (that each party is responsible for their own attorneys' fees unless a statute says otherwise), some degree of success on the merits would be necessary for an award of fees. The Court continued by noting that "[a] claimant does not satisfy that requirement by achieving 'trivial success on the merits' or a purely procedural victor[y],' but does satisfy it if the court can fairly call the outcome of the litigation some success on the merits without conducting a 'lengthy inquiry into the question whether a particular party's success was 'substantial' or occurred on a 'central issue". The Court determined that Hart had obtained some degree of success on the merits in the case before it because the district court had determined that the plan administrator did not follow ERISA's guidelines when reviewing the Hart's benefit claim and had instructed the administrator to re-review the claim, taking into consideration all of the evidence, or the district court would enter judgment for Hart.

Quite simply, the Court really did nothing to clarify the issue of when attorneys' fees are appropriate in an ERISA benefits dispute. The Court's ruling will just create more confusion in the district courts and basically allows the district courts to award or deny attorneys' fees on a whim.

Warning to Hooters Girls - Don't Eat The Wings

The Wallstreet Journal reports today that Hooters has been sued in Michigan for allegedly violating a state law that bars discrimination on the grounds of religion, race, age, sex, height and, of all things, weight. Cassandra Marie Smith, 20, alleges in her lawsuit that she began working at a Hooters in 2008. At the time, she weighed 145 pounds. In a performance evaluation earlier this month, she claims, management advised her to join a gym in order to improve herself and her ability to fit into the extra small-sized uniform. The official uniform for Hooters waitresses, she claims, comes in 3 sizes: extra extra small, extra small, or small. Smith alleges she was advised to sign an agreement placing her on 30 day “weight probation” as a condition of retaining her employment and that she was 5’8 and 132.5 pounds at the time of the evaluation. Smith claims she was unable to return to Hooters after the humiliation of being put on weight probation. Although this case may seem "silly" to some, it is a reminder to employers that many state anti-discrimination laws are more expansive in breadth than federal laws that prohibit discrimination in the workplace. For example, many states (and municipalities) have workplace antidiscrimination laws that prohibit discrimination based on sexual orientation. In contrast, to date, Congress has not extended the reach of federal antidiscrimination laws to that group.

Blue Cross Thinks Chiropractors Are a Pain in the [...]!!!

The United States District Court for the Northern District of Illinois ruled on May 17, 2010 that a group of chiropractors can go forward with their claim that Blue Cross Blue Shield Association entities violated the Employee Retirement Income Security Act ("ERISA") by devising an alleged scheme in which the entities paid the chiropractors and then turned around and asked the chiropractors for reimbursement. See Pennsylvania Chiropractic Ass'n v. Blue Cross Blue Shield Ass'n, N.D. Ill., No. 09 C 5619, 5/17/10). The lawsuit was filed against dozens of Blue Cross entities by numerous chiropractors and associations that represent chiropractors. The plaintiffs alleged that the Blue Cross entities violated ERISA through a scheme in which they would initially reimburse the chiropractors for services provided to individuals insured by Blue Cross plans, and then sometime afterward the Blue Cross entities would make a “false or fraudulent” determination that the payments were made in error. Blue Cross would then allegedly demand repayment from the chiropractors and if the chiropractors refused, Blue Cross would force recoupment by withholding payment on other unrelated claims for services that the chiropractors provided to other Blue Cross insureds, the plaintiffs alleged. The plaintiffs asserted that the Blue Cross entities' repayment requests and forced recoupments violated ERISA.

In denying the Blue Cross entities' motion to dismiss ERISA claims (the plaintiffs also brought RICO claims, which were dismissed), the District Court rejected several challenges Blue Cross made to the chiropractors' ability to support an ERISA claim. Briefly summarizing, the District Court rejected Blue Cross's contention that the Blue Cross entities were plan administrators and thus were not proper defendants under ERISA. The District Court rejected the Blue Cross entities' contention that they were not proper defendants because the U.S. Court of Appeals for the Seventh Circuit has held that plans, and not plan administrators, are proper defendants. The District Court said that the Seventh Circuit has not been so strict as to rule that plan administrators are never the proper defendant in an ERISA action. Instead, the Seventh Circuit has said plan administrators can be sued if they are “closely intertwined” with the plan. The District Court found that in this case, the chiropractors had sufficiently alleged that Blue Cross was “closely intertwined” with the plans because it had the sole authority to make the decisions about repayment and recoupment.

The District Court also rejected the Blue Cross entities' assertion that the ERISA claims should be dismissed because the chiropractors' complaint did not identify even a single ERISA plan, a single plan participant, or a single plan provision that was violated by the Blue Cross companies. According to the District Court, this argument would have carried more weight had it not been for the fact that the chiropractors' complaint alleged that they did not identify an ERISA plan, participant, or plan provision because the Blue Cross entities had refused to tell them which patients and plans were affected by the repayment demands. The chiropractors claimed the Blue Cross entities did this “in an effort to frustrate any attempt to appeal the determination.” Finally, as relevant here, the District Court was not persuaded by the Blue Cross companies' contention that the court lacked subject matter jurisdiction over the chiropractors' ERISA claims to the extent that the chiropractors had obtained assignments of rights from their patients that were not permitted under Blue Cross' ERISA plans. To support this argument, the Blue Cross companies cited to language in their ERISA plans and contracts that prohibit plan participants from assigning their benefits to medical providers. The District Court said that while this bar on assignment of benefits might later defeat some of the chiropractors' claims, it would not divest the court of jurisdiction of the ERISA claims.